SINGAPORE: A committee tasked to review moneylending regulations wants to limit the amount of money a person can borrow from licensed moneylenders, and to simplify the costs involved, especially for late payments.
At a panel discussion on Monday (Nov 3), it suggested a loan cap of four times the borrower’s monthly income, interest rates to be capped at 4 per cent a month, and late interest capped at 4 per cent a month, with no other fees allowed.
Members of the advisory committee noted that the current system of imposing late charges without a cap is open to abuse, especially for rogue moneylenders who have been charging exorbitant late fees. So they have called for moneylenders to also do their part to police themselves.
PROPOSED INTEREST RATE CAP ‘NOT COMMERCIALLY VIABLE’
While moneylenders generally agreed with the rationale for having an interest rate cap, they said 4 per cent is not commercially viable. One reason is the high rate of default, which the Moneylenders Association estimates to be about 20 per cent.
David Poh, president of the Moneylenders Association of Singapore, said the interest cap at 4 per cent is “surprising” to him and his members.
“It won’t be a sustainable figure. We are looking at around 10 to 15 per cent based on our default (costs), our accounts … if this were to go on, at 4 per cent, we will definitely close shop – most of my members will close shop,” he said.
The advisory committee said that based on its data, moneylenders would be able to make a substantial rate of return. But it urged moneylenders to submit evidence on the cost and profit of running a moneylending business to illustrate why 4 per cent is impractical.
PROTECTING THOSE WHO DO NOT FULLY UNDERSTAND BORROWING SYSTEM
Law Minister K Shanmugam said the committee will look into the figure again, but he urged moneylenders to submit evidence to illustrate why 4 per cent is impractical.
He also explained the considerations behind the committee’s proposals.
He said: “The kind of person who can borrow from UBS (banks) does not need my protection. And he is going to employ his lawyer to go and study all the different charges and decide whether he wants or does not want.
“The chap that I am looking at is earning S$2,500 or S$3,000, does not know how to read a form, and when he is faced with a set of charges, he signs because he is desperate for money, and then the charges end up being much more than the principal or interest. That is the kind of situation we are trying to avoid.”
Mr Shanmugam added that it is “a matter of principle” that those who do not fully understand the borrowing system need to be protected.
“The bottomline is, it does not matter how it is computed, but they must know what is it they may end up paying, clearly. Because there is no way these people will be able to read different clauses and work out these are the charges,” he said.
Mr Shanmugam added: “The reality is we are trying to be fair and recognising that there is a need for people to borrow and trying to create an environment that is workable and fair and do what we can to protect the vulnerable borrowers – those with lower incomes, those who are desperate, and they need greater protection, and while being mindful that too heavy an intervention will simply drive the demand underground, they will just move to unlicensed moneylenders or, as you all point out, to Malaysian moneylenders.”
The advisory committee said borrowers who need money for legitimate reasons such as medical bills and housing should ideally be tapping on Government assistance schemes instead of seeking help from moneylenders.
LATE INTEREST CAP ‘TOO MUCH OF A SQUEEZE’
Moneylenders also took issue with the late interest cap of 4 per cent, without any other extra fees allowed.
One of them compared the situation with banks, which charge extra fees for different services.
A moneylender Channel NewsAsia spoke to noted that banks have annual fees, as well as a processing fee, administrative fee, service fee, cancellation fee, cash advance fee, among other fees.
“So right now they have so many fees to collect from, and we have to consolidate everything into 4 per cent. That is too much of a squeeze,” she said.
The committee is also suggesting that the authorities relax a ban on advertising by licensed moneylenders.
A ban was imposed in early 2012, but moneylenders said that in the meantime, unlicensed moneylenders and foreign moneylenders have been sending SMSes or giving out flyers to reach out to potential borrowers. One moneylender said allowing advertisements would improve the image of licensed moneylenders and to show that it is not a “dirty, hidden secret”.